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Strategic Dialogue on Sustainable Raw Materials for Europe (STRADE)

European Union and Raw Material Engagements with Developing Countries – A Review

London, UK

17th February 2017

Masuma Farooki, David Humphreys,

Alexander Malden, Laura Cramphorn

Funded by the

Horizon 2020 Programme

of the European Union

STRADE: European Union and Raw Material Engagements with Developing Countries – A Review

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Project Number: 689364

Project Period: 1.12.2015 – 30.11.2018

Coordinator: Oeko-Institut e.V.

Contact: Dr. Doris Schüler, [email protected] , +49 6151 8191-127

This project has received funding from the European Union’s Horizon 2020 research and innovation

programme under grant agreement No 689364.

Project Partners:

OEKO-INSTITUT E.V. – INSTITUT FUER ANGEWANDTE OEKOLOGIE (Oeko-Institut)

Merzhauser Strasse 173, Freiburg 79100, Germany

SNL Financial AB (SNL AB) Olof Palmes gata 13, 4st, SE-11137, Sweden

UNIVERSITY OF DUNDEE (UNIVDUN) Nethergate, DD1 4HN Dundee, United Kingdom

PROJEKT-CONSULT BERATUNG IN ENTWICKLUNGS- LAENDERN GMBH (Projekt-Consult)

Laechenstrasse 12, Bad Vilbel 61118, Germany

GEORANGE IDEELLA FORENING (GEORANGE)

Box 43, Mala 93070, Sweden

UNIVERSITY OF WITWATERSRAND JOHANNESBURG (WITS)

Jan Smuts Avenue 1, Johannesburg 2001, South Africa

DMT-Kai Batla (PTY) Ltd

P.O Box 41955, Craighall, 2024, South Africa

Funded by the

Horizon 2020 Programme

of the European Union

mailto:[email protected]


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Table of contents

Executive summary 8

Introduction 10

EU mineral resources 11

Why seek raw material engagement? 13

Experience of other countries 13

Conclusion 15

From SYSMIN to the Raw Materials Initiative 16

The 1970s to 1990s – Supply disruptions 17

2.1.1. Threat of supply disruptions 18

2.1.2. The EU response to supply risk 19

Beyond 2000 – Demand competition 21

2.2.1. The rise of China 21

2.2.2. The EU response to demand competition 22

Conclusion 25

Mapping raw material engagements 26

Framework for analysing raw material engagements 26

3.1.1. Approach 26

3.1.2. Raw material engagement objectives 27

3.1.3. Raw material engagement tools 27

Findings 28

3.2.1. Leading engagements 29

3.2.2. Key recipients 31

3.2.3. Regional split 33

3.2.4. Conclusion 34

Objectives for EU engagement 35

Ways forward 36

4.1.1. Considerations 36

4.1.2. An inclusive agenda 37

Strategic objectives 38

4.2.1. Conclusions 39

List of references 41

Annex 1: Breakdown of engagements by recipient 43


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List of tables

Table 1: Domestic material consumption* (metal ores - 1,000 tonnes) 10

Table 2: EIB funded mining projects (2003-2009) 24

Table 3: Objectives of donor engagements (2014) 28

Table 4: Raw material engagement framework 29

List of figures

Figure 1 Intensity of refined copper usage (2015) 12

Figure 2 Copper imports by value and volume (2000 – 2015) 12

Figure 3 China and EU copper, iron ore imports by volume and value (2000 – 2015) 22

Figure 4: Number of raw material engagements – by donor and recipient 32

Figure 5: Number of raw material engagements - by objective 32


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List of abbreviations

Abbreviation Description

€ Euro (currency)

ABE Africa Business Education Initiative for the Youth

ACP African, Caribbean, and Pacific Group of States

AMDC African Minerals Development Centre

AMEP Australia Mongolia Extractives Program

BITs Bilateral Investment Treaties

CDB Chinese Development Bank

CDC United Kingdom’s Development Finance Institution

CSR Corporate Social Responsibility

DAC Development Co-operation Directorate

DFAT Department of Foreign Affairs and Trade

DG Directorate General

DRC Democratic Republic of Congo

EEC European Economic Community

EDF European Development Fund

EIB European Investment Bank

EIP European Innovation Partnerships

EITI Extractive Industries Transparency Initiative

EU European Union

EXIM Export Import

FTA Free trade agreement

GATT General Agreement on Tariff and Trade

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit – German Development Agency

IMF International Monetary Fund

IM4DC International Mining for Development Centre

JICA Japan International Cooperation Agency

JOGMEC Japan Oil, Gas and Metals National Corporation

LHS Left hand side

mn million

NIP National Indicate Programmes

NRCan Natural Resources Canada

OECD Organisation for Economic Co-operation and Development

oz ounce

PAC Public Affairs Canada


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Abbreviation Description

RHS Right hand side

RMI Raw Materials Initiative

SYSMIN System of Stabilization of Export Earnings from Mining Products- EU funded project

t metric tonne (1t = 1000kg)

TTIP Transatlantic Trade and Investment Partnership

UK United Kingdom

USD US dollar (currency, $)

USA United States of America

WTO World Trade Organisation


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Executive summary

European policy choices for engagement with raw material producing countries reflect the economic priorities

of the day and the geopolitical context within which the policy choices are made.

These choices have progressed over the years from the provision of contingency support for raw material

producing countries with which EU countries had some sort of historical association. In more recent years,

policies have focused on capacity development and supporting access to markets through resources-based

diplomacy.

The European Union’s current mineral consumption is at a ‘mature’ level, i.e. is expected to remain stable and

possibly marginally decline in the future. Over the past decade, the EU’s mineral production from internal

sources has not increased.

Within the international space, the EU has seen increasing competition for global minerals from the expanding

demand from emerging economies such as China. The period of high commodity prices in 2003-2008 left

mineral consumers facing higher input costs for the same volume of material. For the EU consumers of raw

material in the manufacturing and infrastructure sectors, these costs potentially impacted their competitive

capabilities in provision of goods and services, relative to other emerging economies.

This brought some urgency for the European Commission to address the stability of supply and access to raw

material for its Member States. The Raw Materials Initiative (2008) focused on improving internal and external

access to virgin raw material, as well as looking at increased recycling and substitution to meet its consumption

demands.

This was not the first time that the EU (and previously as the EEC) Member States were faced with disruptions

in global mineral markets. In the last quarter of the previous century, global supply has been at risk from a

number of factors; from civil war in raw material producing countries, to mineral producer associations

attempting to manage prices cartels. Nationalization of previously privately held mining companies was also

occurring in newly independent African and Latin American countries. The EU’s response to supply challenges

was to focus on directed project level finance and funding, and at the country level to counteract balance of

payment deficits brought about by falling commodity prices. The EU's focus was not to supply concerns per

say, but also to political challenges from the Global South and maintaining good general relations with African,

Pacific and Caribbean (APC) countries in general.

In the post-2008 era, the EU’s response was largely through trade agreements that facilitated the flow of raw

material to the EU. Dialogue based platforms were used to inculcate exchange of best practices with other

international consumers and producers. At a time when other non-EU countries, such as Japan and Canada,

focused their raw material engagements along very specific objectives, the EU’s lack of focused engagement

was clearly evident. The EU appears to be attempting a ‘soft’ approach towards developing countries, in

contrast to the more focused engagement by other countries.

For the EU to be able to access and support stable global mineral markets, where supply or demand

disruptions are less likely to emerge, and sustainable mining practices are employed, three key strategic areas

need to be addressed in resource-rich developing countries. The country governments must have the capacity

to regulate, monitor and govern their natural resources sector in a manner that meets, at least, minimum

international standards. Second, these countries must have the technical skills to explore and establish the

value of their mineral resources. They must have the technical capacity to administer a high skill and

technology sector. Finally, developing country markets, through trade or investment, should be accessible for


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international actors. In return developing countries should have access to EU markets for their mineral exports.

This implies an engagement that is considered fair by both the recipient and the partner country.

This report consolidates the EU’s raw material engagements with developing countries and contrasts this with

the actions required for assisting such countries to be viable partners, to achieve the aims of the RMI. In this

regard, the EU’s unfocused strategy has largely failed. Its raw material engagement approach (as outlined in

Chapter 2) does not address the objectives and tools used successfully by non-EU partners (as outlined in

Chapter 3) in supporting resource-rich developing countries.

Capacity development, technical assistance and market access can be addressed through various tools:

financial engagements governance, research and development etc. It is apparent that the use of these tools

is far more pervasive by non-EU donors than the EU. While individual members, such as Germany and the

UK have been in the leading DAC donors assessed, their contributions are far more limited when contrasted

with Australia, Canada and Norway.

As a consumer of minerals, the EU has a shared responsibility in the sustainable production and consumption

of these materials. This principle is generally accepted by the EU as well as its Member States and their

citizens. The need for the EU to be an active participant in the sustainable (economic, social and

environmental) production of minerals is required. And to do so, the EU’s current raw material strategy needs

to be modified.

The report suggests that resource diplomacy is an effective route for the EU to continue pursuing, but the

depth of this engagement needs to increase. The EU should address the role of institutional capacity building

in developing countries in order to have tangible impacts in partner countries. The EU should move away from

traditional donor-beneficiary relationships pursued in the past. As the raw material space becomes more

competitive, with the increased demand from emerging economics, the EU has to develop more equitable

relationships with third countries. To do this, the EU needs to understand the motivations and wishes of partner

countries, moving away from unilateral agenda setting behaviours.

The report has suggested possible avenues of policy response that could be taken by the EU to have more

effective and meaningful engagement with third countries going forward. The STRADE team will consider

these options as it engages with EU partners in its research in 2017 and 2018.


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Introduction

The Member States of the European Union (EU) have varying demand for minerals and metals and are not

the largest global consumer at this time. Asia remains the dominant global consumer of most metals,

accounting for 63% of global copper consumption in 2015, followed by Europe (18%) and the Americas (13%)1.

Apparent steel use is also dominated by Asia, with China and ‘Other Asia’ accounting for 43.3% and 20.9%

respectively of global consumption, compared to the 10% accounted for by EU282. Between 2000 and 2015,

the domestic material consumption (for metal ores) has marginally declined for the EU as whole. Sweden,

Germany and Poland accounted for 50% of the total in 2015 (Table 1).

The EU’s ability, as a less important global consumer, to directly affect international mineral markets is limited.

European consumers become ‘price-takers’, with metal prices reflecting changes in major consumer countries,

such as China. This, however, does not mean that the EU cannot impact global commodity markets; its

influence is more nuanced and often indirect. Through trade agreements, regulations on financial flows,

engagements with other industrialised consumer countries and targeted development assistance programs for

resource rich developing countries, the EU wields a considerable impact on the global mineral markets.

Table 1: Domestic material consumption* (metal ores - 1,000 tonnes)

2000 2005 2010 2015

EU (28 countries) 292 567 279 724 256 783 284 740

Sweden 30 749 29 115 39 749 60 998

Germany 41 534 33 404 37 858 42 624

Poland 38 868 35 398 31 413 42 033

Bulgaria 25 125 27 768 27 802 29 189

France 23 307 18 682 15 023 19 428

Spain 32 100 27 341 22 123 18 239

Italy 28 177 28 338 20 425 16 317

United Kingdom 16 965 17 271 9 438 15 110

Finland 6 765 7 333 20 559 14 581

*Measures the total amount of materials directly used by an economy and is defined as the annual quantity of raw material extracted from the domestic territory, plus all physical imports minus all physical exports.

Source: Eurostat, http://ec.europa.eu/, accessed 20 January, 2017

This report is the first in a series to be produced under the Strategic Dialogue on Sustainable Raw Materials

for Europe (STRADE) project. STRADE takes a dialogue-based approach, to addresses the long-term security

and sustainability of the raw-material supply from European and non-European countries. Over a three year

period (2016-2018) the project will develop recommendations for the European Commission to access stable

and sustainable supply.

The STRADE project focuses on a number of avenues the EU can constructively use to address its raw

material needs, both from within its Member States and through engagement with external partners. This report

reviews EU’s resource focused engagements with developing countries. It contextualises these approaches

within the larger geo-economic context of the world. To provide a roadmap for the future, the research team

believes it is important to learn from the past. The first step is to document the space the EU occupies within

global markets and the vectors it can influence. While the scope of the STRADE project does not cover trade

1 Source: International Copper Study Group (2016) 2 Source: World Steel Association (2016)

http://ec.europa.eu/


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agreements and financial markets in detail, we acknowledge these are important pillars in international raw

material engagement.

When global mineral markets are functioning close to a supply-demand balance, prices are not erratic. Where

imports and exports of raw material are not hindered by unfair trade practices or collusive behaviour, the need

for interventions by the EU is limited. In addition, where international best practices are in place, promoting the

sustainable production of minerals, where environmental and social impacts are kept to a minimum, the

Commission need not intervene beyond establishing benchmarks for suitable practices. Within Member States

and where it can influence EU based companies, the Commission can go further with monitoring practices and

adherence to its guidelines.

When markets experience supply disruption risks, demand competition from external sources and the

production of minerals may incur environmental and social damages that are not acceptable. The

Commission’s role becomes essential in engagement with raw material producing and consuming countries.

The EU can work towards agreed international standards, with its partners in both the resource consuming

and producing countries. The factors that drive such imbalances, and hence need addressing, are covered

under the STRADE project.

This report lays the ground work for future discussions within the project, and therefore focuses on a descriptive

analysis of past engagements. The research sets up our future discussions and proposed agenda for the EU

to be developed under STRADE in 2017 and 2018.

The introductory chapter provides the context for the report, discussing the EU’s current mineral resources.

The second chapter provides the geo-economic context for previous EU engagements with resource rich

developing countries. Chapter three then turns towards development assistance engagements, comparing the

EU with other donor countries. Chapter four concludes the analysis. The focus of the report is on EU’s outward

looking strategies and the tools of its engagements.

EU mineral resources

To understand the EU’s raw material engagement, it is important to first contextualise the EU’s demand for

minerals. EU’s consumption is largely driven by its manufacturing sector, followed by infrastructure and

construction. Demand for minerals such as potash and phosphates is linked with the agricultural sector.

The International Monetary Fund (IMF) estimates that the consumption of metals typically grows until real GDP

per capita reaches about USD 15 000– USD 20 000 per capita (2005 USD), driven largely by industrialization

and infrastructure construction. As Figure 1 shows, copper consumption begins to drop off as a country’s GDP

per capita increases.

Given that most Member States are at advanced stages of economic development, per capita consumption of

metals is not expected to see increases to the same extent as emerging economies. In addition, as the EU

and its Member States focus on reducing their carbon emissions, the increase in consumption of raw material

will slow down further. It remains unclear if further reductions in use will be achieved.

As a raw materials producing region, EU Member States have maintained relatively stable production levels

over the past decade. Figure 2, for copper (which accounts for 50% of the value generated by mining in the

EU in 2015), indicates no significant changes in production within the EU. These have been maintained near

the same level since 1993. In contrast, global production has increased by nearly double between 1993 and

2015. International prices have also increased from USD 1,779/Mt in 2003 to USD 5,582/Mt in 2015.


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Figure 1 Intensity of refined copper usage (2015)

Source: The World Copper Fact Book 2016 (ICSG)

The production patterns are also reflected in the EU’s imports of major metals. Figure 2 uses copper to illustrate

the marginal increase in volume of copper imports for the EU, while global imports have more than doubled

over the last decade. The copper (by value) data indicates that as copper prices increased over the 2003-2011

period, the EU was paying more for the same volume of imports. The increase in prices therefore was likely to

be a concern for EU consumers; facing a larger financial outlay to procure the same volume of copper.

Figure 2 presents a ‘stable’ production and consumption picture for the EU in terms of volume, over the past

decade. The issue for EU consumers was the price tag that accompanied their consumption. The price

increase reflected changes in global mineral markets that could (and did) threaten their access to raw material

at suitable prices. With raw material used in almost every sector of the economy, higher prices are likely to

impact the input costs for all producers.

Figure 2 Copper imports by value and volume (2000 – 2015)

Source: Calculated from World Integrated Trade Statistics, <http://wits.worldbank.org>

accessed November, 2016

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Why seek raw material engagement?

Global commodity demand is influenced by a number of economic factors, most importantly the overall level

of economic activity, as well as financial variables such as foreign exchange rates. On the supply side,

disruptions at major individual mines (such as the halt to production at the Samarco mine in Brazil in 2015),

changes in tariffs and fiscal measures (such as the ban and imposition of taxes on exports of nickel

concentrates in Indonesia) impact commodity prices. Some supply disruptions are short-lived, while others,

such as changes in trade agreements, change the fundamentals of global mineral markets. All mineral

consumers, producers and financiers, are impacted by these events. In some cases, a perceived risk to

commodity markets, even if not realised, can cause disruptions for the actors within the industry.

The core objective of the EU for its raw material based engagement is the need for undistorted prices and

supporting a supply-demand balance, given the cyclic nature of the global mining sector. In addition, such

stability must include a sustainable production and consumption agenda. The November 2008 communique

from the Commission to the European Parliament and the Council3 articulated this concern:

Securing reliable and undistorted access to raw materials is increasingly becoming an important factor

for the EU’s competitiveness and, hence, crucial to the success of the Lisbon Partnership for growth

and jobs…. From a global geological perspective, there is no indication of imminent physical shortage

of the majority of raw materials in the world. However, geological availability does not necessarily

mean access to these raw materials for EU companies. In fact, fundamental changes in global markets

are threatening the competitiveness of European industry.

As a response, the Raw Materials Initiative (RMI) (2008) was set out and has provided the basis of the EU’s

strategy for raw material in the current decade, focusing on accessing sustainable supply from global markets

and within the EU and supporting resource efficiency through recycling. The RMI is not the first raw material

initiative the EU has employed; there have been many others in the past, each responding to a different set of

market conditions and political circumstances.

It is important for the Commission to pursue a raw material engagement that includes as a major element the

minimisation of the risk of disruptions to global commodity markets. The engagement equally has to strive

towards the sustainable production and consumption of minerals.

Experience of other countries

The EU is not alone in seeking stable markets supporting its production and consumption of raw material,

inclusive of promotion of sustainable practices in both categories.

Many non-EU countries have contended with the same engagement with raw material producing countries. As

major consumers and importers of minerals, China, Japan and the USA are the countries closest to the EU in

terms of their objective supply conditions.

The USA has for the most part adopted a non-interventionist approach to the issue of mineral supplies, relying

on the free operation of markets to provide of raw material to domestic industries. However, it has often sought

to use the dispute mechanism of the WTO to keep open the channels of free trade and to prevent perceived

or actual risks to the competiveness of its minerals and metals industry. For example, its case against China

for restricting exports of rare-earth minerals. Beyond this, the USA has tended to use resource diplomacy as

3 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52008DC0699&from=EN


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a tool to support broader foreign policy goals. For example, the support for capacity-building in the natural

resource sector of Afghanistan.

The approach of the USA stands in contrast to that of China, a country concerned with the continued availability

of raw material to underpin its rapid industrialisation and urbanisation. China has sought to combine its efforts

to secure raw material supplies with policies to promote economic development in supplying countries.

Through its state-owned enterprises (some of these are mining companies but others are metallurgical

companies, railroad companies and construction companies), supported by finance from the Export-Import

(EXIM) Bank of China and the China Development Bank (CDB), China has invested in raw material producing

countries in Asia , Australasia, Latin America and in Africa. Although China’s investments into mining assets

in these regions have grown fast from a low level, they are still below investment levels from Australia,

Canadian and European based companies.

Japan’s policies in this area are of much longer-standing than those of China and rather less direct. In the

1960s and 1970s, Japan encouraged its mining companies to engage directly in overseas mining projects.

This engagement was not without its problems. The failure of the Tenke Fungurume project in the DRC in the

late 1970s was a tough and expensive lesson for the Japanese. Mitsui, a Japanese keiretsu4 was involved in

the project until 1976. Increasing pressures from the DRC government and a deteriorating domestic political

situation caused it to abandon the project (alongside partners Anglo-American) in 1976. Japanese companies

subsequently found it more effective to take financial stakes in (or provide loans to) overseas mining projects

operated by large established miners in return for a guaranteed production offtake.

Although not unique to Japan, another approach was the provision of support for geological surveys in raw

material producing countries. JOGMEC (Japan, Oil, Gas and Metals National Corporation), a government

agency has also been instrumental in hosting business summits with governments and stakeholders of mining

countries in Africa.

Australia and Canada, producers and exporters of mineral raw material, focus on promoting their own mining

companies in emerging mining markets. Australia has a two-pronged approach to resource diplomacy, aimed

at improving knowledge and governance in other raw material producing countries and at supporting its mining

and ancillary companies to expand abroad.

The primary vehicle for Australia’s resource diplomacy is the Department of Foreign Affairs and Trade (DFAT)

although state governments also play a part in promoting the Australian mining industry globally. DFAT’s

initiatives in recent years have included the provision of assistance to ministries of mines to improve

governance (e.g. Ethiopia), technology support (e.g. Turkey) and the sponsorship of training (Lao PDR).

DFAT’s interventions commonly combine development initiatives with trade agreements.

Canada, like Australia, actively seeks to promote its many mining companies in their overseas ventures and

to provide development assistance in countries where Canadian companies are active. A key role in Canada’s

resource diplomacy is Public Affairs Canada (PAC). In addition to direct interventions in resource-rich

countries, PAC partners with Canadian companies in promoting Corporate Social Responsibility (CSR)

projects, most notably in Africa. Assistance for improved governance in resource-based economies is also

provided through a collaborative project of Canadian universities under the Canadian International Resources

and Development Institute and Natural Resources Canada (NRCan).

4 A Japanese group of companies


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Conclusion

One of the basic principles for ensuring a stable raw material supply for the EU is the creation of an enabling

environment for the global mining sector. A sector with a diverse range of participants, operating in a

transparent and well governed sector, with responsible mining practices and a stable investment environment,

aids the EU’s objective in achieving supply stability and maintaining competitiveness.

Part of this enabling environment is the participation and cooperation of resource-rich developing countries,

and a successful strategy needs to be inclusive of their needs. In the next chapters, this report reviews how

EU engagements have been constructed, within the context of the larger global commodity markets and the

contributions from other non-EU entities towards creating stable markets through assistance programmes.


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From SYSMIN to the Raw Materials Initiative

European policy choices for engagement with raw material producing countries reflect the economic priorities

of the day and the geopolitical context within which the policy choices are made. In the pre-2000 period these

focused on the provision of contingency support for raw material producing countries, with which EU countries

had some historical association. In more recent years the focus has shifted to policies around capacity

development and supporting access to markets through resources- based diplomacy.

Commodity markets in the 1970s displayed extreme volatility. The decade is remembered for its two major oil

shocks, with price volatility evident across the spectrum of mineral and agricultural raw materials. This gave

rise to considerable economic management problems for commodity-producing countries.

This sparked interest in commodity price stabilisation schemes, the most prominent of which was UNCTAD’s

Integrated Programme for Commodities. These schemes were never realized. Global schemes for commodity

price stabilisation were beyond what the EU could contemplate. Instead, it sought to address the policy

challenges faced by raw material producers through stabilising their export revenues.

The EU SYSMIN programme, andlater FLEX, sought to address the challenges of volatile export earnings in

ACP countries, these being mostly former colonies of EU Member States. These schemes were conventional

donor-beneficiary engagements, typical of the time. The goal were not to specifically address increasing the

security of supply of minerals to EU industries.

A prolonged period of commodity price weakness in the 1980s significantly dispelled concerns about mineral

availability in mineral-consuming countries. It also led to many countries, having nationalised their mining

industries earlier, to row back direct state ownership of mining assets and to liberalise their mining sectors.

There was also a general loss of faith in the ability of governments, or of intergovernmental agencies, to

manage commodity prices. For example, the collapse of the Sixth International Tin Agreement, which failed to

stabilize tin prices, at very high costs to metals traders and the governments involved.

Under these conditions, there was a reduced appetite in the EU for interventionist policies on raw material and

a greater preparedness to leave the matter of raw material supply to the market. Through the 1986-1992

period, the EU was heavily involved in multilateral negotiations for a new trade-liberalising round of the General

Agreements on Tariff and Trade (GATT). The so-called Uruguay Round came into force in 1994.

The resurgence of commodity prices in the 2000s revived an interest amongst raw material producing countries

in the potential of mineral resources to promote development. They also aimed to rectify what was perceived

as unequitable sharing of financial rewards from mining. This led to demands developing countries for greater

shares from mining revenues. It also led, inevitably, to a revival of EU concerns around the accessibility to

certain key, or ‘critical’, raw materials.

Particular concern on the part of the EU was focused on a group of mineral commodities originating in China.

These included such ‘technology’ commodities as rare earth minerals, indium, gallium and germanium. In a

report prepared by the European Commission in 2010, of the fourteen minerals identified as critical to the EU,

China was the main supply source for ten.

The policy response to this new challenge, the 2008 Raw Materials Initiative (RMI) was focused on schemes

for the encouragement of mining in Europe, on the funding of R&D into critical minerals in the form of

substitution and recycling, on maintaining open market access to minerals, and on promoting dialogue with

supplying countries.


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Parallel with these developments, the EU has, through the European Development Fund, provided capacity-

building assistance to ACP countries using National Indicative Programmes (NIPs). Although NIPs are not

specifically intended for mineral-producing countries, many ACP countries are mineral dependent. The interest

of the mining sector can be addressed in NIPs through wider efforts to promote good governance,

infrastructure and energy related projects.

Since the commodity boom peeked in 2008, commodity prices have retreated and the raw material producing

industry has moved into a qualitatively different phase of life. Pressure has come off supply of minerals and

some of the more acute concerns about availability have receded.

However, not everything has reversed. The commodities boom had two important and potentially longer-lasting

consequences, which the EU needs to factor into its thinking about future supply policies. The first is the

number of economies around the world dependent on the production and sale of mineral raw material has

increased. The second is that there is a much greater awareness of the role that mineral projects can play in

promoting the economic and social development of mineral-rich countries.

The combination of these factors has led to widespread efforts amongst mineral-producing countries to extract

greater value from their mining sector and to assert greater direct control over it. Such efforts included

increases in taxes and royalties, the imposition of tougher provisions over the conditions for foreign investors,

demand for direct shares in new mineral production for indigenous investors, and restrictions on exports of

unprocessed products. Collectively, such policies are often referred to, by those outside the countries, as

expressions of resource nationalism. It is likely that these issues will remain a prominent feature of the industry

in coming years and drive the perspectives and policies of mineral producing countries.

This chapter discusses two separate periods of the global commodity markets: 1970-1999 where markets were

characterised by supply shocks linked to geo-political instability and 2000-2016, where demand disruptions

followed by oversupply has been a leading driver of global commodity markets. The EUs raw material

engagements are discussed within the context of these disruptions.

The 1970s to 1990s – Supply disruptions

The three decades were a turbulent period for commodity markets. The world was experiencing regional

instability, which had global economic consequences. In 1973, as a response to American support for Israel

during the Yom Kippur War, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced an

oil embargo on Canada, Japan, the Netherlands, the United Kingdom and the United States of America (USA).

Within a two year period, oil prices increased from USD 3 to USD 12/barrel. The impact of the energy price

increase left the global economy struggling and global growth rates were modest, increasing by 1.1% per

annum over the 1975-1980 period. The slower growth in economic activity reduced the demand for minerals,

with global trade for base metals increasing by 0.18% per annum, between 1975 and 1980.

Figure 3 illustrates the changes in the global economic markets over the three decades. Metals prices (as

measured by the IMF Metals Price Index) experienced short price spikes in the 1970s and again in the early

1990s before the commodity super cycle started in 2003. GDP growth rates over the past four decades have

fluctuated, with the global economic slump evident for the early 1970 period and again in 2009. However, for

most the 1970 to 2000 period, Global and EU imports of metallic ores remained stable. Between 2003 and

2015, global metallic ore imports increased by 168%, while EU imports increased by 88%. In the case of global

imports this was related to both an increase in volume as well as the price of imports, while for the EU the

increase is mostly reflective of price changes.


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Figure 3: IMF Metals price index, GDP growth & imports of metallic ores (1970-2015)

Source: Metals price index: IMF <http://www.imf.org/>

GDP growth rates: World Bank <http://data.worldbank.org/>

Global imports: Calculated from World Integrated Trade Statistics, <http://wits.worldbank.org>

Accessed November 2016

2.1.1. Threat of supply disruptions

Supply disruptions can be understood under two categories: ‘market’ security and ‘point’ security. Market

security refers to concerns around the collective global markets, where supply disruptions are pervasive across

the world-wide supply of minerals, such as emerging country demand outstripping available supply. Point

security refers to specific geographical fears; supply is disrupted from a single mine or country. This could be

a result of war or resource nationalisation. Either case can result in higher competition for available minerals

and higher prices.

The Club of Rome: In 1972 the publication of ‘The Limits of Growth’ by the Club of Rome (Meadows et al:

1972) highlighted the possible threat of the world running out of resources. The 1972-1975 commodity price

boom further reinforced these fears. This was a market security issue, since it applied to all minerals.

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19

Raw material cartels: There were concerns about the possible replication of OPEC’s success in raising oil

prices, in the minerals sector. Mineral producing countries could collude to inflate the price of minerals.

Therefore supply disruptions could be pervasive across the global market. Throughout the 1970’s, cooperation

among producing countries was sought to stabilize or raise international minerals and metals prices.

Organizations established during this period included CIPEC (International Council of Copper Exporting

Countries), APEF (The Association of Iron Ore Exporting Countries) and IBA (the International Bauxite

Association). While some of the member countries supported pricing recommendations and interventions on

the market, resistance from other producers, particularly Australia, which was a member of all three

organizations, meant that no action was taken. The organizations were eventually dissolved in the 1980s and

the 1990s. The one enduring price stabilisation success has been for diamonds through the De Beers

CSO/DTC “sights” which was established as a sales monopoly to stabilise highly volatile prices in the 1920’s

and 1930’s.

Price stabilization schemes: Price stabilization efforts were very much ‘en vogue’ during the 1970s and

1980s. The Integrated Programme for Commodities that was adopted at the fourth UNCTAD conference in

1976, proposed several commodities, including minerals such as Tin. Most of these schemes were never

implemented, apart from one on Tin which lasted until the sixth UNCTAD conference. At this time, no new

schemes were agreed to. Instead, the existing International Study Group on Lead and Zinc (started 1959),

was supplemented by new study groups on copper5 and nickel6. These groups continue to publish statistics

and serve as fora for exchange of industry information.

Conflict and war: Point supply disruptions were expected from conflict in a number of mineral producing

regions. Africa was witnessing civil wars in Congo, Angola, and Mozambique. During the Zaire (now DRC) civil

war in 1978, disruptions in the cobalt market leading to dramatic price increases provided a microcosm of the

scenario that could develop in other commodity markets. The risk of political instability and civil war spreading

to other countries could lead to supply disruptions becoming wide-spread.

Resource nationalisation: An increase in resource nationalization in developing countries was emerging,

which was perceived by many to increase the risk of point disruptions. Over the 1970 to 1990 period resource

nationalization occurred across Africa, mainly in newly independent countries asserting control over industries.

In Latin America, Chile nationalized its copper industry in 1972. However most of this was reversed in the

1990’s and early 2000’s through widespread privatisations of state mining companies.

2.1.2. The EU response to supply risk

During the three decades (1970–1990), the EEC/EU engagement can be largely described as reactive to

changes in the global mineral markets, rather than proactive. The drivers for EU responses can be separated

as those addressing project level interventions, country level interventions and those addressing wider

development and diplomatic engagements.

Country level interventions

The SYSMIN program (1981-2006) was implemented for ACP countries exporting raw material to the EU.

SYSMIN functioned to strengthen EU economic ties with countries with which it had historical relationships.

The first disbursements under SYSMIN were made in 1986, with the fund acting as a compensatory

mechanism through which governments could be reimbursed for the actual or projected loss of export earnings

in the mineral sector. Between 1986 and 2010, €3.71 billion had been lent to 18 countries. In the first ten years,

5 www.icsg.org 6 www.insg.org

http://www.icsg.org/

http://www.insg.org/


20

to 1996, SYSMIN funds were largely utilized to finance upgrades to existing mining related infrastructure, and

for the purchase of new plant equipment. Over the last ten years of SYSMIN, the focus was re-directed towards

training of local geological personnel, conducting geological surveys and supporting the associated geological

systems and technology and building contract negotiation capacity within governments. Although new

applications for SYSMIN were closed in 2000, assessment of submitted applications continued, with

successful cases receiving funding until 2010.

Part of the aim of SYSMIN was to address point supply risk by supporting mining operations. In its

operationalization it came to be seen more as an annual contribution to producer countries national annual

budgets, than a compensatory finance mechanism. Countries that received financing often complained about

the long process and the time taken to access the funding. The program was designed as a short-term

intervention and therefore its contributions to long term growth and economic diversification for its developing

country partners was limited.

Project level interventions

Project level interventions focused on providing finance to individual mining projects experiencing financial

difficulties. Again, SYSMIN was the main vehicle of funding, providing funds directly to mining operations to

remain operational when faced with a closure risk due to adverse external conditions. Both positive and

negative experiences have been reported.

In 2002, Sierra Rutile Limited received SYSMIN funding to rebuild and replace out of service infrastructure in

its processing plant in South Eastern Sierra Leone. During the civil war (1990-2002) the mine went into care

and maintenance. In 2005, the government of Sierra Leone received €25 million from the SYSMIN fund, which

was then on-lent to Sierra Rutile Ltd. The SYSMIN loan was a ‘vote on confidence’ for the Sierra Leonean

mining industry post-civil war. John Sisay, CEO of Sierra Rutile, said of SYSMIN funding in 2014: “We spent

hours trying to convince fund managers that there was not another war around the corner, and that the peace

and stability were genuine”7. Within a couple of years almost USD 100 million was raised to accelerate and

expand production at the mine. At the time it was the largest private equity capital-raising ever to take place

for a Sierra Leonean company.

SYSMIN funding has been criticized for encouraging mines to stay on-line, when it was no longer economically

profitable to do so. Crowson (2008) comments that countries that received SYSMIN funding “are also liable to

be less affected by market forces, with much less incentive to raise productivity and reduce their costs”. For

example, starting in 1991 the state owned BCL mine in Botswana received nearly €84 million in funds, in three

tranches, under SYSMIN. Apart from direct support to the mine operations, the funding was used to promote

economic diversification away from mining in the towns around the mine8. In the last 15 years the mine has

been in and out of care and maintenance. In October 2016, Botswana finally applied to the high court to place

BCL’s mine in to provisional liquidation and the mine was closed.

Diplomatic engagements

During the 1975-1999 period, EU’s responses to the raw material supply risk were largely under SYSMIN

(followed by FLEX) and there is little evidence of a diplomatic or dialogue based approach taking place at this

time. From 1975 to 2000, EEC/EU engagement was under the domain of DG DEVCO (Directorate-General

for International Cooperation and Development). The Directorate programs included: STABEX, SYSMIN, Flex

7 http://awoko.org/2014/05/09/sierra-leone-news-the-rehabilitation-of-rutile-mines/ 8 http://www.sundaystandard.info/gov%E2%80%99t-blew-p638mln-grant-reckless-abandon-expense-phikwe-eu


21

and NIPs, before raw material was passed on to DG GROWTH in 2006. With the shift in DG’s, the focus of

raw material interventions moved from compensatory finance and development programmes towards the

development of European industries. The focus shifted towards raw material to support the manufacturing

industry within the EU and bolster competitiveness in this sector.

Beyond 2000 – Demand competition

The political instability and its associated threat to supply security dissipated to a large extent by the start of

the 21st century. The civil wars in Africa that dominated the narrative in the 1980s and 1990s had largely drawn

to a close. The majority of sovereign states accepted greater trade openness as an enabler of raising living

standards and economic growth. A number of African and Latin American states have undergone

democratization in the last 30 years. Trading blocs have emerged, with greater movement towards cross-

border harmonisation of rules and regulations for trade and business activity. These trends meant access for

mining exploration and production companies as well as companies that support their operations with ever

increasing geographical coverage. As the threat of ‘point’ supply disruption has receded, concerns have now

moved towards market disruptions coming from the demand side, and the rise of China as a mineral consumer

was the leading driver.

2.2.1. The rise of China

China’s increase in demand came from its rapid growth that relied heavily on rapid infrastructure and

construction spending as well as industrialisation. China’s share of new global demand accounted for over half

the increase in demand for aluminium (60%), steel (58%) and nickel (78%) and almost all the increase in

copper (98%) between 2000 and 2007. As China’s expansion trickled down into global growth, other countries

also witnessed positive growth. Between 2000 and 2006, China’s economy grew at an annual average of 10%,

and global growth rate averaged 3.44% per annum.

As a reaction to the unexpected extent of the increase in demand from China, mining companies struggled to

bring supply onto international markets and commodity prices rose. The preceding two decades of depressed

mineral prices (1980s and 1990s) were accompanied by low investment into the sector. Given the long lead

times for the development of mining projects this meant that the increase in supply response became visible

post 2005. The initial impetus to the 2003-2011 commodity price boom was a demand-pull price effect, where

prices were responding to escalating demand.

China’s trade demand for copper and iron ore (figure 4) increased in both volume of imports as well as the

value of this trade. The increase in imports (by volume) by China more than doubled, accounting for almost all

of the increase seen in global imports of copper and iron ore.

The price increase resulting from Chinese demand, put pressure on European manufacturers, who were

already facing fierce competition from cheaper Chinese exports at home and abroad. Concerns for access to

rare earth minerals and other high tech metals, largely exported by China, also began to emerge.

As a response to demand competition and pressure on its industry’s competitiveness, the EU’s strategic

response to market disruptions was more encompassing than the ad-hoc compensatory mechanisms seen

previously.


22

Figure 3 China and EU copper, iron ore imports by volume and value (2000 – 2015)

Source: Calculated from World Integrated Trade Statistics, <http://wits.worldbank.org>

accessed November, 2016

2.2.2. The EU response to demand competition

The need for a targeted policy response by the EU became apparent around 2007, where discussions began

on a Raw Materials Initiative, culminating in the November 2008 communique by the Council (EC: 2008). The

push for a targeted policy response emerged after consultations with the European manufacturing industry,

which was bearing the brunt of price disruptions. The EU’s response to competition for raw material in the

global markets and increased prices as a result of unprecedented demand from China resulted in four

responses.

Driven by a Green policy movement, the EU increased its interest in recycling, substitution and secondary

raw material. It began looking at reducing waste materials. The interest was also fuelled by the closure of un-

profitable and dirty coal, iron ore and steel sectors in many non-EU countries.

The EU began to engage in resource focused diplomacy with third countries. This used two approaches:

the first pursued beneficial relationships with resource rich developing countries. The second promoted

exchange of best practice with other industrialized countries reliant on raw material imports.

The third policy response focused on creating market access through trade. There has been a marked move

by the EU, since 2000, to push for removal of tariff barriers on imports of its raw material from resource rich

developing countries. This was actively pursued through the EU EPAs which explicitly prohibit their partners

from applying export restrictions on exports to the EU.

The fourth response was to increase domestic supply of raw material by encouraging and expanding raw

material production within the Member States.

The circular economy

The EU demonstrated its commitment to promoting a Circular Economy by increasing recycling efforts and

decreasing waste. It also provided funding and support for substitution, with the aim to promote a ‘resource

efficient’ Europe. The EUs Action Plan for the Circular Economy looks at reducing waste and increase recycling

of waste materials. The approach was operationalised through two major policy initiatives: the European

Innovation Partnership (EIP) and as the third pillar in the Raw Materials Initiative (RMI).

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The EIP’s action plan implements policy responses to the RMI to increase security of supply through increase

in recycling rates. Responses under this initiative have focused on Research and Development commitments

by academic and industry bodies. Currently there are 12 research projects active in the field of waste and

recycling, ranging from metal recovery rates from low grade ores and waste to projects researching re-using

iron and manganese oxides wastes as metal alloys.

Under the third pillar of the RMI, actions include an increase in the trade of waste materials, the development

of best practices in the collection and treatment of waste, improving statistics on waste and material flows and

promoting economic incentives for reuse and recycling.

Creating access to markets

In 2008, at the recommendation of the European Council, the EU launched the Raw Materials Initiative. The

multi-pronged strategy looked at means to increase access to raw material internally and externally. The

internal dimension looks at increasing raw material production within the EU, while the external pillar focuses

on creating access to third country raw material production through trade and investment. The EU’s internal

raw material competiveness and its ability to increase supply from mines operating in Member States will be

discussed in detail in a later report9. Here, we focus on its external engagements.

The EU largely attempted to address the issue of security of external supply through its trade policy. It has

pursued and agreed to free or preferential trade agreements (FTAs) with Southern African states (South Africa,

Namibia, Botswana and Zambia), Ukraine, Chile, Peru, Colombia, Algeria, Egypt and Madagascar, Papua

New Guinea and Cote D’Ivoire. The countries awaiting ratification of free or preferential trade agreements are

mostly West and East African states, Brazil, Argentina, Uruguay, Paraguay and Canada. The EU has pursued

dialogues around specialized trade in raw material with South Korea, Singapore, Tajikistan and China.

The FTAs are of benefit to the EU manufacturing industry. The work completed by DG TRADE serves to

eliminate many of the taxes and barriers that can increase prices for EU manufacturers importing raw material.

Some argue that raw material producing developing countries are prevented from promoting value addition in

in mineral products by FTAs with the EU. This largely to do with the inability to support local industry through

high export taxes on unprocessed materials. Higher taxes on low value added minerals, relative to those that

have been processed, aims to encourage beneficiation and industrialisation activity in host countries.

Criticisms levied by NGOs (Curtis: 2010) suggest that the EU drive to have unencumbered access to (in

particular Africa) developing country raw material symbolizes a return to Europe’s colonial past and is therefore

poorly regarded in partner countries. NGOs argue that FTAs prevent developing countries from capitalising on

their natural resource wealth and ensures that these countries do not progress further than being raw material

producing countries. The viewpoint of trading partners in Africa is discussed in detail by Jourdan and Naiker

(2016).

Resource diplomacy

The EU employed ‘dialogues’ to engage with resource rich countries to further cooperation in the field of raw

material. To date the EU has used dialogue based platforms to engage with the USA, Japan, India, Brazil,

trading blocs in Latin America, the Euro-med countries of Tunisia, Morocco and Egypt and with Greenland.

With industrialized consumer countries, for example the EU-US-Japan trilateral dialogue on raw material, the

focus is on exchanging best practice on improving security of supply of raw material. More recently dialogues

9 Forthcoming: EUs Mineral Cost Competitiveness and Attractiveness


24

are being used to evolve into alliances. For example, Japan and the EU joined the USA as third party

complainants, as the latter raised a complaint against China’s export restrictions on rare earth elements with

the WTO in 2012.

Progress on each dialogue differs. The Greenland dialogue has not seen any formal movement or written

agreements since June 2012, and participants have not met since June 2014. On the other hand the EU-US-

Japan trilateral conference on raw material has been hosted each alternative year since 2013. The third

conference took place in December 2016 and focused on the exchange of technological developments and

best practices for the use of rare earth minerals.

Financial interventions and the European Investment Bank

Between 2000 and 2010, the European Investment Bank (EIB) loaned €651 million to mining companies

developing mining projects on the African continent (see Table 2). The bank made these financing

arrangements under the Cotounou Agreement, focused on development and political cooperation between the

EU and ACP countries. The loans were made on the provision that extraction of mineral resources could bring

socio-economic development in the form of job creation and taxation revenue. The EIB financed eleven

projects in Africa, as well as two with high risk investment funds. Between 2010 and 2016, the EIB has not

provided any financing for mining companies.

The EIB’s funding has not been without criticism. In 2008, a consortium of NGOs criticised the banks’ apparent

delay at releasing a report investigating corporate governance at Mopani mine in Zambia, owned by Glencore

Xstrata.10 A previous leaked report alleged that Mopani had avoided paying millions of dollars’ in local tax. The

EIB published a report on its findings in 2015, detailing its termination of relationship with Mopani and Glencore

Xstrata. Glencore-Xstrata re-paid the loan and no further action was taken by the EIB.

Table 2: Mining projects signed by the EIB under the Cotonou mandate (2003-2009)

Year Country Commodity Company Project EIB Finance € millions

1 2003 Zambia Copper Kansanshi Mining Plc

Brown field open pit copper mine development

34.00

2 2004 Kenya Soda Ash The Magadi Soda Company

Production increase and quality improvements

21.95

3 2004 Mozambique Ilmenite Kenmare Moma Mining Ltd

Development of an ilmenite mine and preparation plant

57.75

4 2004 All Africa Not stated African Lion 2 Mining Fund

Early development of smaller mining projects

6.75

5 2005 Mauritania Iron Ore Sphere Mineral Ltd

Feasibility study for an iron ore mine plus an pelletizing plant

5.00

6 2005 Zambia Copper Mopani Copper Mine Plc

Rebuild of a copper smelter 48.00

7 2006 Republic of Congo

Potash and Magnesium

Mag Industries Corp

Feasibility study for a potash mine and magnesium plant

13.00

8 2006 Zambia Copper Lumwana Mining Company Ltd

Development of a copper mine 85.00

9 2007 Zambia Nickel Albidon Zambia Ltd

Development of a nickel mine 29.50

10 2007 Madagascar Nickel Ambatovy Minerals SA

Development of a nickel mine and processing plants

260.00

10 https://www.theguardian.com/global-development/2014/apr/03/european-investment-bank-inquiry-zambian-miner


25

Year Country Commodity Company Project EIB Finance € millions

11 2007 Botswana Diamond DimonEx Botswana Ltd

Development of a diamond mine 5.00

12 2008 All Africa Not stated African Mining 3 Mining Fund

Early development of smaller mining projects

11.00

13 2009 Mauritania Iron Ore Société Nationale Industrielle et Minère

Production increase of an iron ore mine plus processing plant

75.00

Total signed to date (€ millions) : 651.95

Source: EIB correspondence 10th May 2016

Conclusion

In contrast to the EU engagements pre-2003, the post commodity price boom engagements have been more

broad-based. Engagements such as SYSMIN were largely targeted at the project level, while more recent

engagements (apart from EIB financing) have been at the country or regional level. At the country and regional

level, the more concrete engagements have been undertaken under wider trade agreements. For focused raw

material engagements, ‘shared platforms’ have been common, where mostly industrialised countries have

been invited to share best practice experiences. With developing countries, which saw a large share of

SYSMIN and other funding in the pre-2003 period, dedicated resource sector engagements have been rarer

in the 2000s. Development assistance targeting is detailed in the next chapter, but as outlined in chapter one,

while other industrialised countries (Australia, Canada, China and Japan) were developing and executed

focused engagement programmes, the EU’s participation has been much more limited.

Post 2016, a price commodity boom is not expected to emerge in the next five to ten years, although commodity

prices are likely to trend upwards. Relative to the previous boom, prices for different minerals will behave

differently. Given the relatively steady price behaviour expected in the near future, the EU does not face an

immediate risk of exposure to unstable global commodity markets. However, given the cyclic nature of the

mining sector, it does not mean that such a risk will not arise in the future.

The EU’s raw material engagements over the past decade have moved from ad-hoc compensatory

mechanisms to wider ranging, relationship building exercises. Post 2000, largely as a result of the global

commodity price boom and the increased mineral investments in a number of resource rich developing

countries, the raw material engagements from a range of actors also increased. This chapter mapped the EU’s

engagements to changes in the wider changes in the global mineral markets. The next chapter focuses on the

objectives and the tools used for raw material engagements by governments and international development

agencies. To be able to design a roadmap for the EU, it is prudent to look at the objectives and tools employed

by other countries in engaging with developing countries.


26

Mapping raw material engagements

Attempting to analyse a variety of raw material engagement is a task more suited for qualitative than

quantitative analysis. A number of studies document individual development assistance programmes, their

objectives and narratives on success and failures. This chapter attempts to aggregate this information to allow

a comparative analysis to be drawn of such engagements. The purpose is not to provide an all-encompassing

analysis of mineral based development assistance to developing countries. Instead this chapter provides a

framework which outlines objectives and tools for considering future raw material engagements for the EU.

It is useful to adapt a systematic approach to cover a wide range of engagements. These are classified under

three objectives: Capacity Development, Technical Assistance and Market Access. The three objectives

largely address supply security at a country level; none of the projects discussed here address commodity

demand and recycling.

Using a data driven approach, the analysis is based on a framework that distinguishes between the objectives

of mineral engagements and the tools used to achieve them. These are mapped for major bilateral and

multilateral actors. The interventions analysed are taken from the OECD’s Creditor Reporting System (CRS),

and focus on engagements made in 2014, the most recent year with full coverage of raw material engagements

available.

Framework for analysing raw material engagements

This section establishes a framework to categorize raw material engagements by their nature and objective.

Relevant mineral resource activities were identified in the OECD’s Creditor Reporting System (CRS) database

for the year of 2014.

3.1.1. Approach

The data collection process focused on Overseas Development Assistance (ODA) commitments declared

under sector code 322 ‘Mineral resources and mining’ in the CRS database. A number of engagements were

excluded from the analysis, most notably those focused on the oil and gas sector, as they are outside the

scope of this report. The relevance and correct categorization of each identified engagement was supported

by a desk study of the relevant organization websites. 15 donors were identified, 12 are country-level actors,

and three multilateral organizations: The World Bank through the International Development Association, the

Global Green Growth Initiative and the EU. Of the twelve country level actors, seven are EU Member States

(Czech Republic, Finland, France, Germany, Slovenia, Spain and UK) and five are non-EU Member States

(Canada, Norway, Australia, Japan and South Korea).

This approach does have limitations: it only categorizes specific mineral resource activities and excludes two

other forms of activity that may be relevant: diplomatic engagements that do not have a concrete ODA outcome

and general governance assistance (i.e. non-mineral resource specific governance) that may also benefit the

management of a country’s natural resources. Further, as this is a cross sectional view for engagements

committed to in 2014, it may also exclude activities fully funded in a previous year but still operating in 2014.

As a result, this mapping process is not intended to represent an exhaustive list of engagements, but rather

offer a snapshot of the relevant donors and recipients in the raw material sector.

The central objective of this mapping exercise is to develop a systematic overview of the raw material

engagement strategy adopted by relevant countries. The framework is based on the objectives of the donor

country engagements, and the specific instruments they use to achieve these objectives.


27

3.1.2. Raw material engagement objectives

The specific objectives and tools are defined as follows:

Capacity development: To assist in the development of a country’s capacity to manage their own natural

resources sector. This category would include assistance in developing natural resource management skills

i.e. capacity building for relevant ministry staff in managing regulatory and licensing frameworks. This includes

large, often multi-partner, engagements.

Technical assistance: To assist a country to improve a particular technical aspect of their natural resource

sector. Examples include geological survey and mining cadastre development.

Market access: To open up markets to enable greater access to mineral resources for trade and investment.

This also includes assistance in developing market conditions that encourage private sector investment.

3.1.3. Raw material engagement tools

Finance: Provision of direct financial assistance. This would include grants, donations, public private

partnerships and loans.

Equipment and services: Tools that provide mining support services specific to mining equipment and

services. Examples include supplier development programs and local value addition and linkages for supply

of mining inputs.

Industry relations: Private sector focused initiatives that build cooperation between the industries of the donor

and recipient countries. Examples include business-to-business initiatives and trade delegations, industry

forums.

Governance: Tools that focus on improving the recipient’s natural resource governance framework. Examples

include assistance in developing regulatory, legal, fiscal, environmental and mineral policy frameworks.

Research & Development (R&D): Tools which utilise joint research in a particular area of the mining sector.

Examples include cooperation between academic institutions in the donor and recipient countries, and

knowledge sharing between geological surveys.

International best practice: Tools that offer assistance in improving operating practices in the mining industry.

This includes practices in health and safety, personal protection equipment (PPE), environmental impact

mitigation strategies and mine closure. This tool also includes engagements that are intended to help

stakeholders meet a natural resource management international standard. For example, assistance in

candidacy or compliance with the Extractives Industry Transparency Initiative (EITI).

Where a project could be categorized as utilizing more than one engagement tool, a judgement was made by

the research team of which tool best represents the nature of the project. For example, large capacity

development projects, such as Canada’s Sustainable and Inclusive Communities in Latin America (CISAL),

utilizes multiple engagement tools, were categorized as governance projects. This is because their primary

focus is on working with the recipient government to improve the management of the country’s natural resource

sector.

During the mapping exercise, engagements were identified involving collaboration between multiple donors,

most notably the Australia Mongolia Extractives Program (AMEP), a large capacity development project

conducted by Australia’s DFAT in partnership with GIZ of Germany. However, no project which involved


28

cooperation of multiple EU Member States was identified. In total, 134 relevant engagements were included

in the analysis. These engagements were conducted by 15 donors in 53 resource-rich countries, with a total

value of USD 63 million. A detailed list of objectives by recipient countries is provided in Annex 1.

Findings

Seven out of the twelve country-level donors identified in this mapping exercise are EU Member States: UK,

France, Germany, Finland, Czech Republic, Slovenia and Spain. While the majority of country-level donors

are EU Member States, none of these are in the top three donors for either number of engagements (Japan,

Norway and Canada) or total value of engagements (Canada, Norway and Australia). Table 3 presents a

breakdown of the donors identified in the mapping exercise by number, value and objectives of engagements.

Table 3: Objectives of donor engagements (2014)

Number of Engagements Value (USD 000)

Donor Total Share (%)

Capacity Technical Assistance

Market Access

Total value

Share (%) Mean value

Japan 47 35.1 0 0 47 1 750 2.8 37

Australia 23 17.2 19 4 0 7 020 11.0 305

Canada 13 9.7 12 1 0 14 010 22.1 1 078

UK 10 7.5 1 5 4 2 860 4.5 286

South Korea 8 6.0 8 0 0 190 0.3 24

World Bank 7 5.2 6 0 1 24 810 39.1 3 544

Germany 6 4.5 1 5 0 1 340 2.1 223

Spain 5 3.7 0 5 0 20 0.0 4

Norway 4 3.0 3 1 0 8 370 13.2 2 093

Czech Republic 3 2.2 1 2 0 520 0.8 173

France 3 2.2 2 1 0 1 500 2.4 501

Finland 2 1.5 1 1 0 800 1.3 399

EU 1 0.7 0 1 0 3 0.0 3

Global Green Growth Institute

1 0.7 0 1 0 230

0.4 233

Slovenia 1 0.7 0 1 0 100 0.2 96

Total 134 100 54 28 52 63 520 100 600

Source: SNL analysis based on OECD Creditor Reporting System database.

Accessed 30th September 2016

Examining the raw material engagement approach of EU Member States compared to non-Member States, it

is clear that the leading non-Member states have a clearer and more consistent engagement strategy than

their EU member counterparts. Table 4 presents an overview of the tools used within each target objective.

Japan’s engagement strategy is focused on Market Access. Non-EU Member States, Canada, Australia and

South Korea focus most of their expenditure on Capacity Development. Conversely, EU Member States, such

as UK, France and Germany have split their engagement activity and expenditure across two or three

objectives, suggesting these actors take a more holistic approach towards raw material engagements as

compared to non-EU countries.


29

Table 4: Raw material engagement framework

Tool Indicator Capacity Development

Technical Assistance Market Access

Finance Total no of engagements 2 1 3

Most active donors World Bank (2) EU (1) UK (3)

Largest recipients Sierra Leone (2) DRC (1) Morocco (1) Sierra Leone (1)

Tunisia (1)

Total value (USD mn) 8.4 0.003 0.568

Equipment and services

Total no of engagements 0 1 0

Most active donors NA Slovenia (1) NA

Largest recipients NA Bosnia & Herzegovina (1) NA

Total value (USD mn) 0 0.096 0

Industry Relations


Most active donors Canada (2) Canada (1) NA

Largest recipients Mongolia (1) Honduras (1)

Tanzania (1) NA

Total value (USD mn) 0.006 7.142 0

Governance Total no of engagements 27 5 2

Most active donors Canada (8) United Kingdom (4) IDA (2)

Largest recipients Mongolia (6) Afghanistan (1) Guatemala (1) Kazakhstan

(1) Philippines (1) Vietnam (1)

Côte d'Ivoire (1) Solomon Islands

(1)


R&D Total no of engagements 23 10 47

Most active donors Australia (12) Australia (4) Japan (47)

Largest recipients Ethiopia (3) Mongolia (2) Mozambique (4)


International Best Practice


Most active donors NA Spain (4) Germany (4) NA

Largest recipients NA Chile (4) NA

Total value (USD mn) 0 0.55 0

Source: SNL calculations from OECD Creditor Reporting System database. Accessed: 30th September 2016

3.2.1. Leading engagements

Japan

The most active donor by number of raw material engagements is Japan, with 47 engagements included in

this mapping exercise. Japan has more than double the number of engagements than the next most active

donor, Australia (23). By level of expenditure however it is ranked the sixth most active donor. Thus while

Japan offers a greater number of raw material based engagements, its level of expenditure is not the same as

other countries (Table 5).

The vast majority of Japan’s engagements fall under Market Access, using the provision of training to both

government and private individuals within the recipient country, as its major tool. The country’s main vehicle

is the ‘Training Program for Human Resources Development in the Mining Sector’. Under this program, the


30

Japan International Cooperation Agency (JICA), in collaboration with the National Centre of Research and

Education on Resource Sciences at Akita University, provide both in-country on the job training to private and

government officials, and host individuals from the recipient countries for training programs in Japan. Training

engagements were identified with twenty countries across Latin America, Asia, Africa and Europe. Africa was

the target for the most engagement (ten), followed by six in Asia, three in Latin America and one in Europe.

Given the relatively inexpensive nature of this form of technical assistance engagement, the total value of

these programs for 2014 was under USD 2 million.

Looking specifically at Japan’s human resources development engagements in Africa, JICA operates the

‘Africa Business Education Initiative for the Youth’ (ABE Initiative)11. While this initiative covers a range of

sectors, mining specific engagements were identified in Angola, Botswana, Egypt, Malawi, Mozambique,

Namibia, Nigeria, Sudan, Uganda and Zimbabwe. The objective has been to train young individuals in

developing countries who are able to contribute to the development of their country’s mining sector.

JICA also acknowledges that an objective of this initiative is to develop the capacity of individuals who can

help ‘Japanese businesses to engage in economic activities in Africa’ (Hosoi, 38:2015). This Japanese

engagement strategy tends to cast a very wide yet shallow net, designed to facilitate capacity in developing

partners while at the same time creating access for Japanese companies to as many resource rich countries

mining sectors’ as possible.

Australia

With 23 engagements, Australia is the next most active donor. Australia uses similar engagement tools as

Japan, relying on the strength of its academic institutions as the foundation of its engagements. Its approach

is driven by Capacity Development, rather than the market access objective that drives Japan’s strategy.

Australia’s principle vehicle for raw material engagement has been the International Mining for Development

Centre (IM4DC). IM4DC was established in 2011 and came to an end in 2015. The program brought together

Australia’s mining academic expertise (the University of Western Australia and The University of Queensland),

as well as civil society organizations, and industry and government actors. The IM4DC provided training to

government officials in recipient resource rich countries in order to elevate their ability to manage the country’s

natural resources.

Australia’s engagement distribution heavily focused on near neighbouring countries, with Asia accounting for

eight of IM4DC’s twelve recipient countries. This regional focus is consistent with Australian Department of

Trade and Development’s reduced geographical mandate, following the election of the Abbott government in

201312. IM4DC’s level of expenditure was nearly USD 3.3 million, in training officials in 12 recipient countries.

The Australian government has also provided financial support for the African Mineral Development Centre

(AMDC), working under the African Union.

United Kingdom

The United Kingdom (UK) is the most active EU member state, both by number of engagements (10) and by

level of expenditure (USD 2.9 million). Unlike other leading donors, such as Japan, Canada, Australia and

Norway, the UK does not have a clear and consistent raw material engagement strategy. The UK has

conducted engagements with Capacity Development, Technical Assistance and Market Access objectives,

11 https://www.jica.go.jp/cameroon/english/office/others/c8h0vm00009vxtjj-att/brochure_02.pdf 12 http://www.lowyinstitute.org/issues/australian-foreign-aid

https://www.jica.go.jp/cameroon/english/office/others/c8h0vm00009vxtjj-att/brochure_02.pdf

http://www.lowyinstitute.org/issues/australian-foreign-aid


31

and has used Finance, Governance, International Best Practice and R&D instruments to carry out these

engagements.

The UK is the only country to have conducted finance based engagements, most of which have been

conducted through the CDC group (UK’s Development Finance Institution). The CDC group, founded in 1948,

is the country’s development finance institution wholly owned by the UK Government13. The group focuses on

Africa and South Asia and makes investments in underdeveloped areas which have weak private sectors

struggling to gain access to finance. In 2014 it funded mineral extraction projects in Morocco, South Africa and

Tunisia.

World Bank

The World Bank, through the International Development Association, is the largest donor by level of

expenditure, with a total of USD 24.8 million in 2014, with a mean value of USD 3.5 million per engagement.

The World Bank has a clear strategy of focusing on providing Capacity Development assistance, improving

the recipient government’s ability to manage their natural resources. The majority (4 out of 7) of the World

Bank’s engagements are in Africa. This is due in part to the organizations’ focus on the number of countries in

the region with high mineral potential and underdeveloped mining sectors.

This focus on Capacity Development in the mining sector is driven by the increasing consensus that successful

and efficient utilization of a rich mineral endowment is a developing countries best vehicle available for

achieving sustained economic growth. One example is the extensive capacity development project ‘TA for

Capacity Development in Hydropower and Mining Sector’ project in Lao PDR. This eight year, USD 8 million,

project is designed to increase ‘human capacity and improve the performance of government oversight

institutions for the hydropower and mining sectors’14. This has included assistance in improving the contract

awarding procedure, fiscal regimes and developing legislative and mineral policy frameworks.

3.2.2. Key recipients

Mongolia was identified as the largest recipient of assistance projects by number, with 13 engagements from

four donors: Australia, Canada, Czech Republic and Japan. Given Mongolia’s high mineral potential and

relatively underdeveloped mining sector, it is unsurprising that nine out of the thirteen engagements centre on

of developing the government’s capacity to manage its own natural resources.

Central among these capacity development programs is the four year (2014 – 2018) Australia Mongolia

Extractives Program (AMEP)15, in partnership with GIZ (Germany) and the World Bank. Engagements cover

various aspects of Mongolia’s mining industry, including mining policy development and training of

governmental officials. Other engagements in Mongolia include Czech Republic’s technical assistants for the

countries Geological Survey and Japan’s ‘Training Program for Human Resources Development in the Mining

Sector’.

Mali was the largest recipient country assistance by expenditure, receiving USD 8.84 million in 2014. This

assistance was predominately from the World Bank, through the International Development Association, to

13 http://www.cdcgroup.com/ 14 http://www.projects.worldbank.org/P109736/ta-capacity-development-hydropower-mining-sector?lang=en 15 https://dfat.gov.au/.../australia-mongolia-extractives-program-design-document.docx

http://www.cdcgroup.com/

http://www.projects.worldbank.org/P109736/ta-capacity-development-hydropower-mining-sector?lang=en

https://dfat.gov.au/.../australia-mongolia-extractives-program-design-document.docx


32

help improve transparency and accountability and improve public investment management within the

country16.

Figure 4: Number of raw material engagements – by donor and recipient

Source: SNL Financial analysis (2017)

Figure 5: Number of raw material engagements - by objective

Source: SNL Financial analysis (2017)

16 http://www.projects.worldbank.org/P145275/?lang=en&tab=overview

http://www.projects.worldbank.org/P145275/?lang=en&tab=overview


33

3.2.3. Regional split

Africa received nearly 45% of the total number of raw material engagements, followed by Asia with 34%, Latin

America with 17% and Europe with 4%. Within the regional split, by level of assistance expenditure, Africa

accounts for a the greatest share with 69%, compared to Asia which received 25%, Latin America with 6%

and Europe with 0.3%. The discrepancy between the number of projects and level expenditure is due to the

objective and tools favoured by donors in each region and appears to be dictated at least in part by the nature

of the recipient.

Latin America

Latin America, as a region with a long mining history, is the recipient of projects that focus more on technical

assistance, and specifically projects that aim to improve the operating practices of the existing mine. Nine out

of the twenty three projects identified in Latin America fall into the ‘International Best Practice’ category,

compared to one in Africa and none in Asia. For example, the ‘SecMinStratEl’ project operated by the German

government in Chile looks at the environmental impacts of mining old deposits, including tailings facilities.

Other projects, including projects run by Spain in Peru and Argentina look at Health & Safety procedures in

mining and local community engagement. These types of engagements tend to be inexpensive as they are

often narrowly focused and rely largely on the expertise of the donor country and address a receptive and

technically adept recipient.

Africa

While Africa is the largest recipient of raw material engagements by number, its dominance as a recipient

increases when one includes expenditure levels. The principle reason for this is that the mining industry of

African countries are less developed then those in Latin America and thus the latter require more capacity

development of relevant stakeholders. Capacity development projects, especially those that focus on

governance, are more expensive than technical assistance projects as they entail more holistic and long term

development, and often include cooperation and training of multiple stakeholders. An example of this type of

expenditure intensive capacity development project that centres on governance improvement is the Canadian

project ‘Effective Governance of Mining and Gas Impacts’17 project in Mozambique. This project, with a total

expenditure of USD 0.8 million, addresses socio-economic, environmental and governance and transparency

issues in the Mozambican mining industry. The project requires cooperating with and supporting multiple

governmental actors, including the Ministry of Mineral Resources, the Ministry for the Coordination of

Environmental Affairs and the Ministry for Women and Social Affairs.

Asia

Many of the raw material engagements in Asia have been driven by mineral resource endowment as a potential

tool for development. For three of the largest recipient countries in Asia: Afghanistan, Mongolia and Myanmar,

developing the countries’ natural resource sector management can bring about economic development and

political stability. As a result, these countries have been the recipients of comprehensive capacity development

programs. For example, the ‘Myanmar-Australia Partnership for Reform’18. This USD 38 million three year

project aims to develop Myanmar’s institutional and governance strength in order to facilitate the peace-

building process through greater political stability. Australia is assisting Myanmar to comprehensively reform

its natural resource management, including training key governmental staff and developing the country’s

17 http://www.acdi-cida.gc.ca/cidaweb%5Ccpo.nsf/projEn/D000115001 18 https://mohinga.info/en/profiles/activity/MM-FERD-ID3669/

http://www.acdi-cida.gc.ca/cidaweb%5Ccpo.nsf/projEn/D000115001

https://mohinga.info/en/profiles/activity/MM-FERD-ID3669/


34

Ministry of Mines. Such projects aim to use natural resources as a vehicle for development, with the long term

in-direct advantage of improving global supplies.

Europe

While three quarters of the donor countries identified in the mapping process are from within Europe, only two

recipient countries from the region were identified. Kosovo has been the recipient of assistance from both

Czech Republic and Japan, as part of larger projects designed to facilitate political stability and economic

growth. The second European recipient country is Bosnia and Herzegovina, receiving technical assistance in

modernizing the technology used in the exploitation of the country’s mineral resources (MFA Slovenia: 2011).

Bosnia and Herzegovina’s position as the principle recipient of Slovenian raw material development assistance

is driven by Slovenia’s overall foreign policy objective of ensuring the security, stability and development of the

Western Balkans region19.

3.2.4. Conclusion

Having reviewed the raw material engagements of both bilateral and multilateral actors, it is evident that Japan,

Australia and the World Bank demonstrate a clear raw material engagement strategy. With well-defined

objectives, these actors have executed targeted programs.

While certain EU Member States have been active in this field, most notably UK, an identifiable coherent

strategy is not evident. There appears to be considerable untapped potential to develop greater collaboration

between these donors to develop a coherent raw material engagement strategy that leverages the

considerable expertise available within the EU.

19 http://www.vlada.si/en/projects/slovenia_and_the_western_balkans/

http://www.vlada.si/en/projects/slovenia_and_the_western_balkans/


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Objectives for EU engagement

This report started with a snap-shot of the current EU mineral production and consumption levels, suggesting

that EU’s mineral consumption is at a ‘mature’ level, i.e. is expected to remain stable and possibly marginally

decline in the future. The EU has not seen increasing mineral production from internal sources over the past

decade and has looked to international imports to meet its raw material needs.

The EU has seen increasing competition from the expanding demand for minerals from emerging economies

such as China. The period of high commodity prices in 2003-2008, left EU mineral consumers facing higher

input costs for the same volume of material.

This brought some urgency for the European Commission to address the stability and access to raw material

for its Member States, particularly in the case of rare earth minerals. The Raw Materials Initiative (2008), the

flagship programme was set up, focusing on improving internal and external access to virgin raw material, as

well as looking at increased recycling and substitution to meet its consumption demands.

This was not the first time the EU (and previously as the EEC) Member States were faced with disruptions in

global mineral markets. In the last quarter of the 20th century, global supply disruption risks have been driven

by a number of factors: from civil war in raw material producing countries, to metal price cartels and resource

nationalization in newly independent African and Latin American countries. The EU was also aiming to maintain

good relations with ACP countries, some of which were major commodity producers. Therefore the EU’s

response was to focus directed project level finance and funding at the country level to counteract balance of

payment deficits brought about by falling commodity prices.

In the post 2008 era, the EU’s response was less concentrated, largely through trade agreements. These

agreements looked at eliminating market distortions, thereby contributing to an orderly world market for

minerals, which in turn improved supply conditions for the EU. Dialogue based platforms were used to inculcate

exchange of best practices with other international consumers and producers. At a time where other non-EU

countries, such as Japan and Canada, focused their raw material engagements along very specific objectives,

the EU lack of focused engagement was even more contrasting.

For the EU to be able to access and support stable global mineral markets, where supply or demand

disruptions are less likely to emerge and sustainable mining practices are employed, three key strategic areas

need to be addressed in resource rich developing countries. The country governments must have the capacity

to regulate, monitor and govern their natural resource sector in a manner that meets minimum international

standards within the sector. Second, these countries must have the technical skills to explore and establish

the value of their mineral resources and have the technical capacity to administer, what can be at times, a high

skill and technology sector. Finally, developing country markets, through trade or investment, should be

accessible to EU members and developing countries must have access to EU markets for their exports.

Capacity Development, Technical Assistance and Market Access can be addressed through various tools:

financial, governance related, research and development etc. The report acknowledges that the quantitative

analysis undertaken in chapter three is restricted to one year and offers a snap-shot rather than a trend.

However it is apparent that the use of these tools is far more pervasive by non-EU donors than EU Member

States. While individual members, such as Germany and the UK have been in the leading DAC donors

assessed, their contributions are far more limited when contrasted with Australia, Canada and Norway.

The EU does, indirectly, benefit from the activities of other donors. For example, better governance of mineral

resources in developing countries supported by the World Bank creates a ‘public good’ where everyone can

partake from responsibly produced minerals, but, on the other hand, it can be argued that the EU is often the


36

beneficiary of “bad” mining contracts through the enhanced legal and illicit financial flows from mining to the

EU. So, is there a need for the EU to assist developing countries through raw material engagements, or are

its efforts not required?

Policy briefs under STRADE (Schüler et al: 2016) in 2016 outline the socio-economic and sustainability

challenges that are currently faced by the global mining sector. The policy brief on voluntary initiatives

particularly shows the concerns of international actors in supporting responsible mining practices. Despite the

number of such initiatives and progress towards achieving them, these issues continue to have a significant

impact on developing countries and, in turn, the consumption of minerals across the world.

As a consumer of minerals, it is in the EU’s interest that “international mineral order” is seen to be fair and

equitable so future disruption can be avoided. The EU also has a shared long-term responsibility in the

sustainable production and consumption of these materials. This principle is generally accepted by the EU as

well as the Member States and many of their citizens. Therefore, the need for EU to be an active participant

in the sustainable (economic, social and environmental) production of minerals is required. And to do so, the

EU's current raw material strategy needs to be augmented.

The augmentation is required on two fronts when it comes to raw material based engagements with developing

countries. First, the policy objectives and the tools available to the EU to achieve said objectives need to be

clearly articulated. Second, the agenda for the dialogue appears to be unilaterally set and needs to be more

inclusive of partner country concerns. As STRADE’s policy brief on African evaluation of the EU’s approach to

Raw Material Engagements (Jourdan & Naiker: 2016) indicated, the issues that are of concern to partner

countries may not be the same as those discussed by the EU in its engagements.

Therefore, the first step in making recommendations for the EU’s raw material engagements is to address first

what objectives the Commission can consider in further refining the RMI and second, what issues need to be

added to the dialogue it conducts. These steps are not mutually exclusive, as the agenda items will be deeply

linked with the objectives and the tools the EU develops in the future.

Ways forward

The EU requires a clear view of its engagement objectives if it is to be able to identify suitable options for

taking the policy forward. This has not always proven easy in the past. As indicated in chapter two, policy

objectives in the EU have moved from contingent financial support to former colonies (ACP countries) to

creating ‘platforms’ for discussions. Chapter three outlined the objectives of Member States focusing on

technical assistance and capacity building for mineral producing countries, addressing issues to developing

country mining sectors. Thus while at the EU level resource engagements have been at very broad level, at

the Member State level these have been very specific.

4.1.1. Considerations

In defining its objectives, the EU needs to take account of the geopolitical environment and to recent

changes in this environment. Some of these changes, notably the heightened awareness of the modern

economy’s dependence on imported raw material, the declining EU share of global mineral demand and the

resurgence of resource nationalism, were in part a direct result of a fast-growing global economy and of the

resulting boom in commodity markets.

Although the outlook over the next few years is for a slower-growing global economy and less buoyant

commodity markets, it seems probable that the changes in the geopolitics of resources wrought in the boom

years will persist. Indeed, it is possible that some aspects of resource nationalism will be aggravated by


37

weaker prices and falling state revenues from the resource sector. Furthermore, with the centre of gravity of

resource use having shifted towards Asia, it must be assumed that competition for resources from this region

will remain intense into the future.

It will be important in this world for the EU to continue to uphold the principle of an open global market for

mineral raw material, and an environment which encourages the free flow of investment to the world’s best

mineral deposits, remains the best guarantor of plentiful supplies of minerals for European industries. And,

from time to time, it may be necessary to assert this principle by mounting challenges to restrictions on mineral

trade in the forum of the WTO. However, constraining export tariffs is out of the WTO ambit and would not

impact on EU competitiveness.

There are strong forces working against further multilateral trade liberalisation. The WTO’s Doha Round of

trade negotiations, launched in 2001, has effectively been abandoned. Other multilateral initiatives for trade

liberalisation, such as TTIP (Transatlantic Trade and Investment Partnership) face an uphill struggle. The

capacity, and arguably the will, of the USA to champion and to police the multilateral trading system is

declining.

In addition, a number of raw material-producing countries have been imposing restrictions - in the form of

export tariffs or outright bans - on their exports of unprocessed mineral raw material with a view to encouraging

the domestic processing of these minerals. While these schemes may be out of compliance with WTO rules,

it may be impractical, as well as politically counterproductive, to challenge all such export restrictions through

the WTO. In many cases, the restrictions are also in conflict with bilateral investment treaties (BITs), which

have led to some cancellations. For the countries concerned, such restrictions are deemed to be in the

interest of their economic development and, essentially, sovereign acts. It would be prudent to assume that

such restrictions will be part of the landscape for the future, and if applied to all export destinations, do not

impact on the competitiveness of EU firms.

There is also a need to broaden the focus of policy concern in relation to raw material away from China

and from so-called critical materials. Although these were a legitimate focus of policy concern during the

boom years, the issue of resource nationalism and the challenge this gives rise to is a systemic one, potentially

giving rise to problems across all raw material supplying countries and to the whole range of minerals supplied

into the EU.

Finally, there is need to acknowledge that the EU faces growing competition with other regions in respect

of its resource diplomacy. The activism of China is the most obvious source of competition but, as the

previous chapter illustrated, a number of other countries are devoting significant efforts to building better

relationships with supplying countries, to enhancing their capacity to attract and manage effective mineral

development, and to promoting their companies in resource rich areas.

4.1.2. An inclusive agenda

Given the nature and severity of the commodity boom which ran from 2003 to 2008, it was perhaps not

surprising that the most recent iteration of EU policy on raw material, in the form of the Raw Materials Initiative

(RMI), had, as its primary focus, the supply needs of European industries. It essentially set out to evaluate

what these needs were, where the greatest vulnerabilities to supply-disruption lay, and then to elaborate

measures to deal with the identified threats. The approach was essentially unilateral. It was the product of

internal deliberation, not a consultation exercise with supplying countries and did not therefore pay much

regard to the perspectives or needs to supplying countries.


38

Earlier initiatives of the EU with respect to raw material producing countries, such as SYSMIN, may have had

different objectives but nonetheless adopted a similar approach. The EU defined the policy challenge and then

developed instruments to address it. This inevitably resulted in the creation of donor-beneficiary relationships

between the EU and mineral-producing countries, with recipient countries essentially at the table in the role of

supplicants rather than partners of the EU.

To move beyond this, towards the adoption of a policy and of policy instruments which are relevant to the EU’s

longer-term needs and appropriate to the geopolitics of the time, the EU will need to understand better, and to

respond more constructively towards, the agendas of the countries which supply it with raw material.

It will need to think in terms of partnerships rather than in terms of donor-beneficiary relationships. It will need

explicitly to consider the potential role of mineral projects in national, and more particularly, regional,

development. It will, in effect, need to integrate the interests and perspectives of supplying countries into EU

policy.

The foundations for such an approach lie in the mutual self-interest of the parties, the supply needs of the EU

on the one hand (plus the needs of its companies operating outside the EU) and the development needs of

raw material producing countries on the other. This mutual interest finds its clearest expression in the shared

benefit that flows to both parties from the encouragement and facilitation of productive investment in the

mining sector.

The precise identification of interests of the EU and of raw material supplying countries, and the development

of a respectful understanding of each parties’ perspectives needs to be drawn out through a sustained

process of dialogue, such a dialogue to be based on an honest and open declaration of interests and of each

party’s expectations of the other party in the dialogue.

It cannot work if there is any presumption that one party’s interests take precedence over the other. This

implies an effective re-set in the policy agenda from the thinking which has driven earlier initiatives in this field.

It will also require that both parties bring to the table practical ideas and projects which can give substance to

the partnership. In the case of the EU it will mean putting real development projects on the table.

Although it is evident that the establishment and maintenance of a dialogue logically precedes a full elaboration

of policy measures, it is nonetheless possible to sketch out some of the policy options that such an approach

might lead to and mechanisms for taking them forward. This is the subject of the next section.

Strategic objectives

Meeting the supply needs of the EU while taking full account of the development needs of supplying countries

points to the EU shaping its future policy on engagement with non-EU raw material producers around two

major themes: Maintaining open, undistorted and equitable markets so that the EU’s economic efficiency

and competitiveness are preserved and Engaging with developing country partners in a manner that

addresses their natural resource agenda as well, which may well require a rethink of EU support to its basic

mineral processing industries originating from their colonial past. The issue of an inclusive agenda, where the

concerns of partner countries are given a fair share of the discussion, will be developed in more detail in later

STRADE reports.

The first of these themes is about maintaining and improving channels for the equitable flow of trade and

investment, with a view to ensuring good availability of mineral supplies for consumers whilst creating broad

development opportunities for producers and would-be producers. This would also include the promotion and

facilitation of specific opportunities which offer business benefits to EU companies and development benefits

for mineral host countries.


39

The framing of policy options in these areas needs to take account of what is the institutional level most

appropriate for addressing these matters, whether this is the EC, the EDF, the EU member state, or elsewhere.

It also needs to take account of the existing instruments available to progress this agenda and the experience

derived from the use of earlier instruments. Finally, but importantly, it needs to take account of the experience

of other countries, and to consider whether they offer lessons for what the EU might usefully do.

The EU can play an important role in institutional capacity-building in raw material producing countries. Such

capacity-building covers such traditional institutional support as that for ministries of mines, for geological

surveys, for the framing and implementation of mining law, and for the administration and trade. But it can also

extend to cover a broader range of objectives including support for environmental regulation and schemes

for social sustainability.

The EU already has programmes which address some aspects of capacity building on a wider country/sectoral

level, in particular through the European Development Fund. One of the matters that dialogue with producing

countries might reveal is how successful these efforts are in meeting their objectives and how they might

be refined and developed in future. It might, for example, consider the greater use of scholarships to enable

young and mid-career government officials to broaden their knowledge and deepen their skill sets. Or it might

consider direct support for regional sector development organisations such as the Africa Union’s African

Minerals Development Centre (AMDC).

Dialogue might also point to other ways in which the EU might deepen its engagement with supplying

countries. It might reveal information about the effectiveness and popularity (or otherwise) of China’s ‘activist’

role to promoting resource development through infrastructure-for-resource deals, and whether there are any

useful lessons from this policy for the EU. Similarly, it might reveal something of the perceived benefits of

Japan’s (JOGMEC’s) support for geological surveys and R&D, a scheme which, on the face of it, may be closer

to what the EU might practically consider undertaking than what China is doing.

For the EU to play this role effectively and credibly, and engage constructively with specialists in member state

and in mineral host countries, it would need to develop within it a cadre of expertise on the mineral sector

and on associated industries. Resource diplomacy as practised by Australia and Canada is commonly

conducted by those with close familiarity with the resources sector (for example, those who have worked in

mining or trade ministries or in related research organisations) and supported by those actively involved in it.

4.2.1. Conclusions

The research published under the third work package of STRADE have attempted to provide a baseline of

engagements taken by the EU in the field of raw material. Subsequent publications have reviewed

engagements taken by industrialised third countries and partner countries viewpoints concerning EU

engagements. The work should provide its reader with an understanding of the EUs current strategy and how

this may compare and contrast with countries with similar levels of import dependency. The work should also

demonstrate how partner countries views of EU engagement should inform collaboration going forward.

This report has traced the EU engagements in the raw material sector over the last 40 years and has

demonstrated how the EU has arrived at its current engagements strategy on resource diplomacy. The report

also showed how the EU as a whole is behind other industrialised countries in terms of spend and number of

engagements taken with third countries.

The report suggests that resource diplomacy is an effective route for the EU to continue perusing, but the

depth of this engagement needs to increase. However, it may be an option for the EU to pay more attention to

the role of institutional capacity building in third countries in order to have tangible impacts in the partner


40

country. The report has also suggested that the EU move away from traditional donor- beneficiary relationships

pursued in the past. As the raw material space become more competitive with the rise of producers becoming

consumers, the EU should develop more equitable relationships with the third countries that it chooses to

engage with. To do this, the EU needs a good understanding of the motivations and wishes of possible partner

countries, moving away from unilateral agenda setting.

The report has suggested possible avenues of policy response that could be taken by the EU to have more

effective and meaningful engagement with third countries going forward. The STRADE team will consider

these options as it engages with EU partners in its research in 2017.


41

List of references

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Cramphorn, & Farooki 2016 Cramphorn, Laura and Farooki Masuma. 2016. Non- EU Country

Engagements with Raw Materials Producing Countries. STRADE

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2016_Aug2016_FINAL.pdf

Crowson, 2008 Crowson Philip, 2008. Mining Unearthed. London: Aspermont

Curtis, 2010 Curtis, Mark, November 2010, The New Resource Grab: How EU

Trade Policy on Raw Materials is Undermining Raw Materials.

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source%20grab.pdf

EC, 2008 Communication from the commission to the European parliament and

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Farooki, Cramphorn & Malden

2016

Farooki, Masuma, Cramphorn, Laura and Malden, Alexander. 2016.

European Union’s Approach to Raw Materials Engagements: A

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df

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Union’s Approach to Raw Material Engagements: A Review of

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http://stradeproject.eu/fileadmin/user_upload/pdf/PolicyBrief_02-2016_Aug2016_FINAL.pdf

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http://stradeproject.eu/fileadmin/user_upload/pdf/PolicyBrief_01-2016_May2016_FINAL.pdf

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42


2016_Nov2016_FINAL.pdf

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zavescanje_javnosti/Publikacije/Publikacija_MRS_2010_EN.pdf

Schüler, Brunn, Gsell and

Manhart, 2016

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Mining Sector. STRADE Policy Brief No. 05/2016. Available from


2016_Oct2016_FINAL.pdf

Schüler, Degreif, Dolega,

Buchert, 2016

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Voluntary initiatives in the mining sector and their principles and

criteria on environmental sustainability. STRADE Policy Brief No.

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in the European Union. STRADE Policy Brief No. 08/2016. Accessed

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http://www.mzz.gov.si/fileadmin/pageuploads/Zunanja_politika/ZDH/Ozavescanje_javnosti/Publikacije/Publikacija_MRS_2010_EN.pdf




43

Annex 1: Breakdown of engagements by recipient

Recipient Region No. of engagements

Total value (in USD millions)

Mean value (in USD millions)

Afghanistan Asia 4 1.380 0.345

Angola Africa 4 0.042 0.010

Argentina Latin America 3 0.045 0.015

Bolivia Latin America 2 0.008 0.004

Bosnia and Herzegovina

Europe 1 0.096 0.096

Botswana Africa 2 0.060 0.030

Burkina Faso Africa 1 1.287 1.287

Burundi Africa 1 0.186 0.186

Cambodia Asia 3 0.038 0.013

Chile Latin America 7 0.501 0.072

Colombia Latin America 2 0.922 0.461

Côte d'Ivoire Africa 1 0.005 0.005

Democratic Republic of the Congo

Africa 1 0.003 0.003

Egypt Africa 1 0.032 0.032

Ethiopia Africa 3 3.421 1.140

Gabon Africa 1 0.014 0.014

Ghana Africa 1 0.475 0.475

Guatemala Latin America 1 0.006 0.006

Honduras Latin America 1 0.003 0.003

Indonesia Asia 1 0.309 0.309

Kazakhstan Asia 1 0.027 0.027

Kenya Africa 1 0.025 0.025

Kosovo Europe 4 0.119 0.030

Lao PDR Asia 6 6.679 1.113

Liberia Africa 2 1.378 0.689

Malawi Africa 4 0.159 0.040

Mali Africa 3 8.849 2.950

Mexico Latin America 1 0.018 0.018

Mongolia Asia 13 5.118 0.394

Morocco Africa 1 0.086 0.086

Mozambique Africa 6 1.191 0.199

Myanmar Asia 6 0.470 0.078

Namibia Africa 3 0.684 0.228

Nicaragua Latin America 1 0.004 0.004

Nigeria Africa 5 0.070 0.014

Pakistan Asia 1 0.024 0.024

Papua New Guinea

Asia 1 0.110 0.110

Peru Latin America 4 1.482 0.371


44

Recipient Region No. of engagements

Total value (in USD millions)

Mean value (in USD millions)

Philippines Asia 2 0.379 0.190

Sierra Leone Africa 2 8.400 4.200

Solomon Islands

Asia 2 1.008 0.504

South Africa Africa 2 0.303 0.152

Sudan Africa 3 0.041 0.014

Tanzania Africa 1 7.142 7.142

Thailand Asia 1 0.041 0.041

Tunisia Africa 1 0.412 0.412

Uganda Africa 3 0.047 0.016

Uruguay Latin America 1 0.769 0.769

Uzbekistan Asia 2 0.041 0.021

Viet Nam Asia 2 0.238 0.119

Yemen Asia 1 0.024 0.024

Zambia Africa 2 8.354 4.177

Zimbabwe Africa 5 1.073 0.215

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